Per the tax guidelines, there are two types of income – active and passive.
Active incomes are the income you generate by working at a job or career where you spend a significant amount of time. These are typically called W2 income because you get the income statement through Form W2 through your employer. Capital gains/losses from sale of stock is also considered active income.
Passive incomes are the income you generate by not actively working, like rental income from a property or income from a side business that doesn’t take much effort.
One can offset profits from active income with active losses and offset profits from passive income with passive losses. These cannot be intermixed.
Multi-family investment produces passive income through cash flow distributions every quarter (through Form K-1) and long term capital gains on the sale of the property.
It’s important to understand these differences, talk to your tax advisor to ensure you are taking advantage of it to the full extent.
